Due to the strengthening of the dollar and the nation’s balance of payments deficit, the Indian rupee might depreciate to 82.50 versus the dollar by March, according to a research note from IDFC First Bank.
As the dollar index surged to its greatest level since May 2002 and the British pound fell, the rupee on Monday fell to a record low of 81.5775. The U.S. Federal Reserve this week increased rates by an additional 75 basis points and foresaw further significant increases to keep inflation under control, which fueled the dollar’s surge.
In the future, according to IDFC First Bank analyst Gaura Sen Gupta, “we expect the dollar strength will remain.” The Fed will likely need to raise interest rates to 4.6% and keep them there for the rest of 2023 given the strength of the US economy.
Officials predict that the Fed rate, which is now between 3% and 3.25 percent, will rise to 4.4% by the end of the year. The rupee has been under pressure due to a high balance of payments (BoP) imbalance as well as the strengthening of the dollar. Sen Gupta made note of the fact that the current account deficit (CAD) for India is predicted to increase to 3.5% of GDP and perhaps to 4% if exports continue to decline.
In the meanwhile, given the high Treasury rates and poor global risk sentiment, foreign portfolio flows are also anticipated to remain turbulent. Sen Gupta predicted that, assuming a CAD of 3.5% of GDP, the bigger current account deficit and portfolio outflows will lead to a BoP deficit of $63 billion in the current fiscal year.
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